AT&T (T) Offers Key Business Updates & Affirms Growth Targets
The top management of AT&T Inc. T recently debriefed investors about its progress on various operational metrics and reaffirmed its wireless service revenue growth target for 2021. John Stephens, the senior executive vice president and chief financial officer of the company, also shed some light on its continued business transformation initiatives to create long-term value for shareholders.
AT&T is increasingly focusing on its customer-centric business model to attract and retain customers for a lower churn rate. The company is witnessing healthy momentum in its postpaid wireless business with increased adoption of higher-tier unlimited plans. This, in turn, is expected to result in year-over-year growth in wireless customers with unlimited tariff plans. With solid network coverage, the company continues to expect wireless service revenues to grow about 2% in 2021.
The company emerged as the second highest bidder after Verizon Communications Inc. VZ in the C-Band auction for mid-band airwaves with $23.4 billion worth of bids. Notably, the auction will offer 280 MHz of spectrum in the 3.7-3.98 GHz band for potential 5G deployments over the next few years. This mid-band airwaves offer significant bandwidth with better propagation characteristics for optimum coverage in both rural and urban areas. While Verizon secured 3,511 of the 5,684 licenses up for grabs, AT&T claimed 1,621 licenses to close in the gap with T-Mobile US Inc. TMUS in relation to mid-band spectrum holding.
AT&T expects more than 3 million customer additions in the fiber optic network in 2021 with solid demand trends for seamless broadband connectivity. Stephens further revealed that streaming content from HBO Max is increasingly gaining traction. AT&T is benefiting from its hybrid distribution model, which focuses on releasing content to theaters through Warner Brothers and directly to consumers through HBO Max. The company is likely to expand HBO Max in the international markets in late June in order to generate incremental revenues from customer additions.
The company has inked an agreement with private equity firm TPG to divest its U.S. video business to reduce its debt burden. AT&T is likely to receive $7.6 billion from the transaction, while retaining stake within the newly formed DIRECTV. In addition, the company expects a reduction of about $300 million in depreciation and amortization expenses in each quarter until the completion of the transaction.
Solid cash flow, along with prudent capital management strategies, is likely to offer the company the requisite financial strength and flexibility to maintain the growth momentum through continued infrastructure investments. Through continuous debt-reduction initiatives driven by monetization of non-core assets and cost cuts, AT&T expects to maintain a dividend payout rate as it aims to reward shareholders with attractive risk-adjusted returns.
An integrated fiber expansion strategy is expected to improve the broadband connectivity for both enterprise and consumer markets, while steady 5G deployments are likely to lend support for improved end-user experience. AT&T remains focused on business transformation efforts to augment operational efficiency and facilitate optimum utilization of resources to enhance value. The company expects this holistic growth policy to add significant customer value and generate healthy ROI across the business.
The stock has lost 16.4% in the past year against the industry’s growth of 4.5%.
We remain impressed with the inherent growth potential of this Zacks Rank #4 (Sell) stock. A better-ranked stock in the industry is Cambium Networks Corporation CMBM, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Cambium has a long-term earnings growth expectation of 20%. It delivered a positive earnings surprise of 128%, on average, in the trailing four quarters.
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